A steep decline in gold prices and precious metal stocks helped push the S&P/TSX composite index 99.65 points lower to 11,462.87, leaving the main index 20 per cent below its highs of early March and officially in what traders call a "bear" market.
The TSX ended the week down 925 points or 7.46 per cent, leaving the key index at its lowest level since July of 2010.
And there are worries that losses could get worse. Sombre predictions about flagging growth in the world's largest economy and the possibility of a painful outcome to the European debt crisis have spooked many into seeking a safe haven for their money.
"I think it's going to get bad, I can see another 20, 25 per cent downside (on the TSX) from here," said John Stephenson, portfolio manager at First Asset Funds Inc.
"The simple reality is that we have a potentially bigger crisis mounting than we've experienced in 2008-09 because governments, which are the instruments that bailed us out of the last crisis, are now insolvent, and now they're broke and we know that because many (countries) in Europe are being downgraded."
The junior TSX Venture Exchange dropped 52.16 points to 1,546.08.
The Canadian dollar had been higher during the morning but was back in negative ground by the end of the day and closed down 0.19 of a cent to 97.14 cents US, leaving the dollar down 5.01 cents this week to its lowest level in a year as investors bailed out of anything remotely risky and piled into U.S. Treasury bonds.
Selling pressure eased in New York where the Dow industrials gained 37.65 points to 10,771.48 after losing more than 700 points over the previous two days. The Nasdaq composite index climbed 27.56 points to 2,483.23 while the S&P 500 index rose 6.87 points to 1,136.43.
The tumble on stock markets was sparked initially by a warning from the U.S. Federal Reserve that the U.S. economy faces sizable downside risks, which added to uncertainty that Europe's fiscal crisis would not be contained.
Investors were not assured by a pledge to stabilize markets from the world's leading economies.
Finance ministers from the G20 countries meeting in Washington vowed Thursday to "take all necessary actions to preserve the stability of the banking systems and financial markets" and to make sure banks have the cash they need to pay their day-to-day expenses.
However, the G20 statement "fell short (of) committing more direct support to Europe," observed BMO Capital Markets senior economist Carl Campus.
The Moodys bond rating agency downgraded eight Greek banks by two notches Friday due to their exposure to Greek government bonds and the deteriorating economic situation in the country.
Greece has been kept solvent by a euro110 billion bailout in 2010 from other eurozone countries and the International Monetary Fund. But it has needed another massive bailout this summer, and has angered international creditors by lagging behind in its commitments to implementing reforms and carrying out pledges.
European officials have begun to speak openly of the possibility of a Greek default, and the fears have further roiled international markets.
The gold sector was the biggest Toronto loser, down about five per cent as the December bullion contract on the New York Mercantile Exchange fell $101.90 to US$1,639.80, for a loss of 9.6 per cent this week, despite the precious metal's reputation as a safe haven.
But analysts point out that gold also got caught up in the intense volatility on stock markets this week.
They point out that steep market losses triggered margin calls which in turn resulted in investors selling other investments to meet those commitments. That selling in turn pushed gold through technical support levels, which in turn triggered more selling.
Barrick Gold Corp. (TSX:ABX) fell $2.46 to $47.73 and Goldcorp Inc. (TSX:G) was down $2.15 to $46.95.
Demand concerns continued to push other commodities sharply lower with oil falling below the US$81 a barrel mark.
"I think the key for commodities is their global industrial production story by and large, certainly that's been the case for base metals and energy," added Stephenson, "and right now you see global industrial production flatlining and turning slightly negative in China, the engine of commodity demand."
The November crude contract on the New York Mercantile Exchange fell 66 cents to $79.85, also losing 9.6 per cent this past week and taking the energy sector down 1.08 per cent. Canadian Natural Resources (TSX:CNQ) fell 67 cents to C$30.23 while Cenovus Energy (TSX:CVE) was ahead 70 cents to $31.24.
The base metals component fell 2.5 per cent as copper prices, often used as a barometer of global economic health, continued to fall with the December contract on the Nymex tumbling 21 cents to US$3.28 after earlier hitting a fresh 52-week low of US$3.21. Teck Resources (TSX:TCK.B) gave back $1.02 to C$30.73 and First Quantum Minerals (TSX:FM) lost $1.08 to $13.71.
Financials were supportive on the TSX, up 0.54 per cent. Royal Bank (TSX:RY) was up 73 cents to $46.09 and Scotiabank(TSX:BNS) climbed 73 cents to $50.73.
The TSX also found support from the industrials sector where Canadian Pacific Railway (TSX:CP) rose $2.37 to $48.59, while Canadian National Railways (TSX:CNR) gained $1.52 to $67.34.
In corporate news, U.S. retailer Target (NYSE:TGT) laid down more groundwork Friday for its entry into Canada in 2013 with additional store locations and a supply deal with Sobeys (TSX:EMP.A). Under the Sobeys deal, the Canadian grocer will supply Target with frozen, dairy, and dry grocery products, including both national brands and Target's private label products starting early in 2013. Sobey's parent Empire's (TSX:EMP.A) shares dipped 59 cents to $55.50.
Silvercorp Metals Inc. (TSX:SVM) has filed a lawsuit in New York against several short-sellers for spreading "false, defamatory and fraudulent" information about the Canadian mining company. Its shares declined 14 cents to $6.91.